Dividend aristocrats are companies in the S&P 500 index that have annually increased its dividend for the past 25 years.
These companies have a multi-decade history of not only issuing a reliable dividend, but increasing the size of their payout each year.
There are only 65 companies that satisfy the dividend aristocrat criteria that is stated below:
- Member of the S&P 500 Index
- Increase per-share base dividend every year for at least 25 consecutive years
- Minimum float-adjusted market capitalization of at least $3 billion
- Average at least $5 million in daily share trading value for the three months prior
In this article, we will identify three of the 65 aristocrats that appear to be well-positioned for the next 3-5 years, amidst a backdrop of macroeconomic uncertainty.
Dividend Aristocrats For Your Watchlist
This includes Atmos Energy (ATO), Walmart Corporation (WMT), and Becton, Dickinson & Co. (BDX).
1) Atmos Energy (ATO)
- 1-Year Trailing Performance: +6%
- Market Cap: $14B
Atmos Energy is the country’s largest natural gas-only distributor, delivering natural gas to +3 million distribution customers via its proprietary pipelines and storage assets across eight states located primarily in the South.
That includes one of the largest intrastate natural gas pipeline systems in Texas.
Atmos has 38 consecutive years of rising dividends, and most recently increased its 2022 annual dividend by 8.8% to $2.72 per diluted share.
Continued dividend raises appear likely given the company’s strong balance sheet, which consists of approximately $3.5 billion in liquidity with $1.4 billion of financing to support operations.
In the six months ended March 31, Atmos Energy recorded a diluted EPS of $4.24, up 5.74% from the same time period a year prior.
The company attributes this growth to net increases in rate case outcomes in both of its Distribution and Pipeline & Storage segments.
A utility company files a rate case increase when the customer rates no longer cover the cost of delivering the given utility – in this case, natural gas.
The company’s dividend history, strong balance sheet, investment-grade credit rating, and business tailwinds (as the U.S. looks inward for more home-grown energy solutions) make Atmos Energy an attractive dividend aristocrat for the foreseeable future.
2) Walmart Corporation (WMT)
- 1-Year Trailing Performance: -12%
- Market Cap: $324B
Walmart operates a chain of discount department stores and grocery stores around the globe. It is the world’s largest private employer with over 2.3 million employees.
Walmart has increased its annual cash dividend every year since it first declared a $0.05 per share dividend in 1974; that is 48 consecutive years of dividend increases.
And while individual valuations matter, consumer staple stocks like Walmart tend to perform well during recessions, or periods of economic contractions, generally speaking.
Among several other reasons, their outperformance stems from shifts in consumer behavior, such as changes in where they get their essential goods, or choosing to eat at home versus eating at a restaurant.
It’s reasonable to assume that many consumers will turn to Walmart, or at the very least, purchase a larger percentage of their essential goods at Walmart because of its more affordable prices.
Betting on this shift in consumer behavior makes Walmart not only a top dividend aristocrat to consider, but also places it amongst the best recession proof stocks for 2022 and beyond.
One note on valuation before we discuss the next dividend aristocrat: Walmart currently trades at price-to-earnings ratio of 25.44, compared to other consumer staple giants like Costco Wholesale (COST) at 35.17, Dollar Tree (DLTR) at 22.84, and Procter & Gamble Co. (PG) at 23.10.
While valuation metrics like the PE ratio must be interpreted with context, Walmart appears to be reasonably valued amongst its peers.
3) Becton, Dickinson & Company (BDX)
- 1-Year Trailing Performance: +0%
- Market Cap: $67B
Becton, Dickinson and Company, also known as BD, is a medical device technology company that manufactures and sells medical devices, instrument systems, and reagents. It also operates a consulting and analytics arm.
Like the people-will-still-need-toilet-paper thesis we laid out for Walmart, medical devices remain in high demand regardless of the economic environment.
This dynamic, in addition to the government’s large presence in the healthcare industry, allows for a company like BD to not only sustain, but enhance its margin profile amidst macroeconomic pressures.
A robust balance sheet is the norm for Becton, Dickinson.
So much so that it has recorded 50 consecutive years of annual dividend increases with a target payout ratio of 30%.
BD’s strong balance sheet enables responsible growth strategies over its three business segments BD Medical, BD Life Sciences, and BD Interventional, which accounted for 48%, 30%, and 22% of last quarter’s revenue, respectively.
Becton, Dickinson & Co.’s revenue is also geographically distributed, with 56% generated in the United States and 44% generated internationally.
A location-diverse stream of revenues makes BD less vulnerable to single points of economic friction or failure, which we believe contributes to the company’s robust balance sheet, thus enabling its status as a dividend aristocrat.
Other Dividend Aristocrats to Consider
In these uncertain times, companies in traditionally stable industries with relatively fair valuations tend to outperform their equity counterparts.
Historically, these companies are in the consumer staples, healthcare, and utilities sectors of the economy.
This information is what led us to identifying Atmos Energy, Walmart, and Becton, Dickinson & Co. as three of the top dividend aristocrats to own.
However, there are additional equities that share similar characteristics to these three, are also well-positioned to outperform the broader market, and have a multi-decade history of increasing their dividend.
In the consumer staples sector, we like Hormel Foods (HRL), Coca-Cola (KO), and Procter & Gamble (PG), which are all primary holdings in the top consumer staples ETFs.
For healthcare, Cardinal Health (CAH) and AbbVie (ABBV) appear to be attractive.
If picking individual aristocrats is too cumbersome, consider buying an exchange-traded fund that tracks the performance of all 65 of them, such as the ProShares S&P 500 Dividend Aristocrats ETF (NOBL).
Final Thoughts on Dividend Aristocrats
With the Federal Reserve withdrawing liquidity from the system and raising interest rates, plus inflation at 40-year highs, generating returns in the equity market will be challenging.
The dividend aristocrats discussed in this article might help ballast your portfolio during these chaotic times in the market.
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Disclosure: The author is not a licensed or registered investment adviser or broker/dealer. They are not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
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